- It comes almost five years after savers saw £3.7bn of their cash trapped.
- Supervisor Link closed the Woodford Equity Income Fund in 2019
- The compensation plan was supported by 94% of investors
Investors left in the lurch by the collapse of Neil Woodford’s flagship fund will receive compensation totaling up to £230m from April, following a judge’s ruling yesterday.
It comes almost five years after 300,000 savers saw £3.7bn of their cash trapped in the Woodford Equity Income Fund when watchdog Link Fund Solutions closed it in June 2019.
They have already received £2.56 billion from their investments and the additional sum covers claims against Link.
The compensation plan was supported by 94 percent of investors, but some groups representing those affected argued that the agreement was inadequate.
Conservative MP Bob Blackman, chair of the All-Party Parliamentary Group (APPG) for Fairer Financial Services, said it was “disastrous for Woodford investors”.
Lawyers who opposed the deal said investors would have been better off if they had been allowed access to an industry-backed compensation plan. But that was rejected by Judge Richards.
A campaign group, Transparency Task Force, said it was considering an appeal.
This could delay the start of compensation payments, with between £183.5m and £200m set to begin being distributed from April out of a total fund of £230m.
The rest of the money has been set aside to cover “certain cost contingencies” – which have not been specified – and could be released to investors later.
Meanwhile, watchdog the Financial Conduct Authority (FCA), which is still investigating unspecified “other parties” over the episode, was accused of “regulatory failure”.
The saga began after savers entrusted their money to Woodford, a star fund manager who made his name at Invesco before setting out on his own in 2014.
Held in the City, the BBC once described him as “the man who can’t stop making money”. But it all went wrong after Woodford decided to invest in small, growing, unlisted companies. After they started to underperform, there was a rush to exit and Link suspended the flagship fund in June 2019, leaving those who still had money there stranded. Four months later, Link decided to liquidate the fund.
An FCA investigation concluded that Link made “critical errors” in the management of the fund’s liquidity – that is, the ability to convert its holdings into cash.
Investors who began withdrawing their money from the fall of 2018 benefited disproportionately from the sale of the funds’ most liquid assets.
The FCA ruled that this was unfair to remaining investors as the assets remaining in the fund were becoming increasingly illiquid or more difficult to convert into cash. It considered Link should pay £298m to compensate them, but later reached a compromise deal on a sum of £230m, 77 per cent of the amount proposed by the regulator. By accepting the settlement, those who are owed money lose the right to bring any additional claims against Link.
APPG member Baroness Bowles criticized the FCA for not intervening sooner to protect investors. She said the agreement was intended to “avoid further scrutiny.” An FCA spokesman said: ‘We are pleased that the court has decided to approve the plan. The small minority who opposed it have now had their arguments fully considered by a judge, who did not agree.’